Performance, Commentary & Portfolio
ISIN GB00BNG2M159 | SEDOL BNG2M15
Fund Manager’s Review
Portfolio Overview
Allianz Technology Trust’s Net Asset Value (NAV) total return was 3.94% in May compared to the Dow Jones World Technology Index return of 5.97%.
Technology shares advanced in May despite U.S. Federal Reserve chair Jay Powell signalling that investors would need to be “patient and let restrictive policy do its work” in reducing inflation, as market sentiment was generally positive and boosted by earnings results from select companies. Monthly relative performance trailed the benchmark due to short-term stock selection and allocation impacts. There was a notable dispersion in benchmark industry returns, with semiconductor and technology hardware stocks meaningfully outpacing software and IT services. Our positioning within software and IT services stocks was the primarily source of underperformance for the month, which was countered by positive bottom-up stockpicking in interactive media and services and communications equipment industries. Similarly, a greater emphasis on mid caps, which has been a key contributor to performance over time, offset results due to their greater interest rate sensitivity and investor preference for select mega-cap names.
Contributors
Our avoidance of consumer and communications equipment giant Samsung Electronics Co. contributed to relative performance in May as the stock was lower despite improving profits and incremental demand for artificial intelligence (AI) related applications. We continue to prefer other companies with better business models.
Shares of Pinterest, Inc., a social media networking site focused on home, culinary and design inspiration, surged following robust quarterly sales and user growth which surpassed market expectations. The company has been investing heavily in its digital advertising business, including partnerships with Amazon and Alphabet. We believe that the stock remains attractive thanks to its differentiated strategy and high level of recurring user engagement, translating to a high degree of revenue and earnings visibility.
|
We saw a similar pattern of a slow relative start compared to broader technology peers in early 2023, which reversed course in the second half of the year |
Our avoidance of financial management software maker Intuit Inc. aided relative results as the stock was lower following lackluster earnings and a weaker-than-expected guide, as did the exclusion of diversified software and creative content provider Adobe Inc. as shares continued to moderate post the company’s generative-AI boom in late 2023/early 2024. Our active position in application software maker monday.com Ltd contributed to results thanks to upside earning results.
Detractors
Shares of MongoDB Inc., a document database provider which allows storage of structured or unstructured data to make development of applications more agile, offset performance following a weak outlook combined with overall headwinds in software names. The company’s more cautious stance on growth reflects an overall softening of IT spending among clients and higher competition from peers which may translate to greater spending on research and development and sales efforts in order to maintain its competitive market share. We are actively monitoring this position and whether a change in our thesis is warranted.
A below-benchmark position in iPhone and personal computer maker Apple Inc. also offset results for the month. The stock has been a recent beneficiary of improving sentiment, perceived safety from a valuation standpoint following multiple quarters of relative underperformance, combined with a potential greater focus and partnerships for AI-related applications. We continue to hold the stock given its leadership position, consumer loyalty and history of innovation, and for now will remain at a larger-than-typical underweight given our preference to provide alpha potential and diversification in other stocks.
Our exposure to cloud-based commerce platform Shopify, Inc. offset results following a weaker-than-expected earnings outlook, which prompted our decision to exit the name in favour of stocks with better near-term catalysts. Our above-benchmark exposure to infrastructure software solutions provider Cloudflare Inc. and cloud-based data monitoring and analytics platform Datadog Inc. each offset results given their muted guidance combined with the overall headwinds in IT services and software companies.
New buys and sells
Portfolio turnover was low in May, reflecting our viewpoint that the portfolio was already well-positioned from a bottom-up standpoint. There were no new buys in the portfolio during the month. The only complete sell was the aforementioned Shopify Inc., which was cut amid disappointing results and expectations that a new cycle of increased spending would likely translate to weaker margins and take time to materialise.
Outlook
There was a wider-than-typical performance differential between key technology industries in May as AI-related euphoria translated into divergent outcomes in the short-term. Areas like semiconductors and hardware were among the outperformers, while software and IT services lagged due to their muted guidance and interest rate sensitivity, as expectations for Fed rate cuts have been lowered from six to under two, over the year-to-date period. It’s important to note that the recent reporting quarter is seasonally slow for software and IT services due to tech spending cycles which favour the back half of the year. We saw a similar pattern of a slow relative start compared to broader technology peers in early 2023, which reversed course in the second half of the year. Our viewpoint is that this playbook may continue this year as well.
Technology earnings results have been broadly positive and we continue to believe that the equity market rally can extend into the second half of the year. Inflation has trended lower over the trailing twelve months but has moved sideways so far this year. A normalised monetary policy backdrop should be conducive for economic strength to broaden. Despite relatively tight monetary conditions, the global economy remains healthy. Valuations remain reasonable and we believe there is ample room for estimates to increase which should be the primary driver of performance over the course of the year. We are seeing a broader recovery of earning growth, including for mid-and small market capitalisation stocks. Even if there is more volatility ahead, we believe companies further down the cap spectrum have discounted more uncertainties, offering attractive risk rewards for companies that are well positioned for a recovery.
Our conviction in secular growth opportunities within technology, including AI and machine learning, Internet of Things (IOT), cyber security, digital assets and mobility, remains high thanks to secular growth potential and bottom-up fundamental factors. Despite short term periods of higher volatility among technology stocks, earnings growth ultimately drives stock prices over the long term, and in our view, we are still early in the spending trend supporting this dynamic segment. We are excited about the investment opportunities presented, and believe our researchdriven, bottom-up process is the most effective means to capture the value generated by this theme.
Mike Seidenberg
14 June 2024
This is no recommendation or solicitation to buy or sell any particular security. Any security mentioned above will not necessarily be comprised in the portfolio by the time this document is disclosed or at any other subsequent date.
Key Information |
|
|
Launch Date |
December 1995 |
|
AIC Sector |
Specialist Sector: Technology, Media & Telecoms |
|
Benchmark |
Dow Jones World Technology Index (sterling adjusted, total return) |
|
Annual Management Charge |
0.8% p.a. on market capitalisation up to £400 million, 0.6% p.a. on any market capitalisation between £400 million and £1 billion, and 0.5% p.a. on any market capitalisation over £1 billion. In addition there is an admin fee of £55,000 p.a. |
|
Performance Fee 1 |
Yes |
|
Ongoing Charges 2 |
0.70% |
|
Year End |
31 December |
|
Final published in March, Half-yearly published in August |
|
|
AGM |
May |
|
Price Information |
Financial Times, The Daily Telegraph, www.allianztechnologytrust.com |
1.Calculated as 10% of outperformance against the benchmark, after adjusting for changes in share capital and will be capped at 1.75% of the Company’s average daily NAV over the relevant year.
2. As at the Trust’s Financial Year End (31.12.2022). Ongoing Charges (previously Total Expense Ratios) are published annually to show operational expenses, which include the annual management fee, incurred in the running of the company but excluding financing costs.
Registrations |
|
|
Company No. |
03117355 |
|
FATCA GIIN No. |
YSYR74.99999.SL.826 |
Codes |
|
|
RIC |
ATT.L |
|
SEDOL |
BNG2M15 |
|
ISIN |
GB00BNG2M159 |
Awards & Ratings
Investment Week Investment Company of the Year Award 2021 – Specialist category
Allianz Technology Trust won this coveted award in November 2021, having also been a winner in similar categories in 2020, 2019, 2018, 2017 and 2015. This award recognises excellence in closed-ended fund management and highlights ATT’s consistent performance over time. The judging panel was made up of some of the UK’s leading researchers and investors in investment trusts and closed-ended companies, as well as several senior board members with many years’ experience in the industry.
Association of Investment Companies Shareholder Communication Awards 2021
Allianz Technology Trust won the Best Large Trust category, in recognition of its consistent, high achievement. The publication noted that ATT achieved the highest returns among this year’s award-winners (performance measured over three years to 31 January 2020), calling it “a worthy winner of our most prestigious sector award”. This accolade is an independent, statistical and qualitative assessment of ATT’s performance and highlights the Trust’s outperformance both in its class and against its peers.
Shares Awards 2020 – Best Investment Trust
Allianz Technology Trust was pleased to win ‘Best Investment Trust’ in The Shares Awards 2020. The awards were voted by readers of Shares and by the general public, making the award truly representative of the people who invest in the Trust and its peers. In presenting the award, Shares Magazine noted: “The technology sector had been in the ascendancy even before the events of 2020 but the global pandemic has super-charged this trend. We have been even more reliant on tech to tackle the day-to basics of work and home life. Staying in touch through video conferencing, ordering goods and food online and streaming entertainment to keep us entertained at home. Allianz Technology Trust is plugged into these themes and was voted Best Investment Trust in this year’s Shares Awards.”.
Kepler Growth Rating
Kepler Ratings are designed with investment trusts specifically in mind and aim to highlight those which they consider to be ‘best in class’ based on a clear, easy to understand set of quantitative tests. The selection system is entirely quantitative, setting aside all personal biases and views, looking at the universe in a purely objective way.
Morningstar Rating Allianz Technology Trust has a 5 star rating with Morningstar. This is a risk-adjusted, cost-adjusted comparison of fund performance within fund categories. The underlying methodology is robust and accounts for periods of volatility-downward volatility in particular-and also adjusts for fund expenses, including sales charges. That means the more expensive the fund is, the harder it will be for the fund to earn a high star rating.
A ranking, a rating or an award provides no indicator of future performance and is not constant over time.
Morningstar star rating © 2021 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.